Social Security is not “going broke” because Social Security cannot go broke

Dan Crawford commends John T. Harvey’s blunt reminder, “Why Social Security Can’t Go Bankrupt.”

It is a logical impossibility for Social Security to go bankrupt. We can voluntarily choose to suspend or eliminate the program, but it could never fail because it “ran out of money.”

… It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be – there is no other possible way for it to work.

… This is how Social Security actually operates. As you can see, this needs no prior financing or savings, nor would that appear to be particularly helpful. At the national level, maintaining a class of retirees (whether via Social Security or private pensions) means redistributing existing output, not putting money under your mattress. Although you can run out of money for retirement, we, as a nation, cannot.

What, then, you may ask, is the Social Security Trust Fund, the pool of money that people say will dry up and make it impossible for anyone to receive their Social Security payments? It is the surplus that resulted from having collected more in taxes than was necessary to pay out to retirees. Let me say that again: it is how much existing workers were overtaxed relative to the need to pay retirees in the past. It was never the source of the money we’ve been paying to Social Security recipients all these years. Strictly speaking, it’s completely unnecessary if we are able to precisely and continuously match tax revenues and pay outs.

Yes. Please remember this: Anyone who tells you that Social Security is “going broke” is either lying to you or, at best, does not have the first clue how Social Security works.

Social Security is not going broke. Social Security cannot go broke.

It is not an account that can be depleted, it is an arrangement between generations. As long as there are generations, then Social Security will continue to exist.

There is no debt or deficit that can interfere with that arrangement. The arrangement, like any promise, can be deliberately broken, but it cannot go broke.

Only two scenarios can be imagined to make Social Security stop working:

1. Our grandchildren all turn out to be selfish assholes and oath-breakers, deciding en masse to screw over their retired parents and grandparents while also being so short-sighted as to invite their own children and grandchildren to screw them over in turn upon their retirement. If all of our children turn out to be evil and stupid, then Social Security will not be sustainable. But then if all of our children turn out to be evil and stupid, nothing else will be sustainable either.

2. Some kind of science-fiction, P.D. James, Children-of-Men scenario in which the human race mysteriously becomes incapable of reproducing. That would mean no future generation of workers to pay for Social Security benefits, and thus would entail the end of Social Security. But since it would also entail the end of everything else, including the human race itself, it’s hard to view such a potential problem as a flaw in the design of Social Security.

 

  • aunursa

    … It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be – there is no other possible way for it to work.

    It is not an account that can be depleted, it is an arrangement between generations. As long as there are generations, then Social Security will continue to exist.

    It sounds like a government-mandated pyramid scheme.

  • http://twitter.com/FearlessSon FearlessSon

    I think that part of the issue is when a succeeding generation is smaller than the proceeding one, the relative burden becomes a lot heavier, and if that newer generation is in an economic climate where they are paid little and have few opportunities  there is that much less to pass on to the retirees.  

    It certainly does not mean that Social Security will be broke, but that does not mean that it might not need corrective maintenance.  This maintenance is less about fixing Social Security itself, and more about fixing the economic context it is paid in though.  

  • EllieMurasaki

    A pyramid scheme is a thing where people on one level get two, four, or eight times what they paid in, provided a neverending supply of people who pay in. Social Security doesn’t work like that, for reasons including that the population is just not expanding that quickly and everyone knows it. Also, does anyone have numbers on average individual total pay-in and average individual total pay-out?

    Initially, yeah, it kind of did–but initially the age at which one could begin getting Social Security checks was mean life expectancy, so half of everyone who paid into the system was expected to never get a payout from it.

  • P J Evans

     The fastest way to make it work better would be to raise the income cap on contributions. Ideally, there would be no income cap, but that ain’t gonna happen.

  • P J Evans

     They adjusted the system, back in 1984, to allow for increased life expectancy. (It turns out that the average lifespan after retirement hasn’t actually increased that much. Most of the increase is because fewer people die before adulthood.)

  • aunursa

    Also, does anyone have numbers on average individual total pay-in and average individual total pay-out?

    This may help …
     Social Security and Medicare Taxes and Benefits Over a Lifetime (PDF)

  • Lori

     

    It sounds like a government-mandated Ponzi or pyramid scheme.  

    And with this you once again prove the old adage that we see the world not as it is, but as we are.

  • aunursa

    Thanks for providing an intelligent and thoughtful response.

  • EllieMurasaki

    Okay, thanks.

  • LoneWolf343

    *cue Morbo* FRAUD DOES NOT WORK THAT WAY!

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    All government pension plans are run this way, on a pay-in/pay-out basis. Even Canada’s still mostly does, although part of it is invested in the stock market (and look how well that’s turning out – not!) these days.

    The only reason you can’t run a corporate pension plan this way is because governments live forever, in theory. Corporations can and do go under, so the fund that pays out pension benefits can’t be a flow, it has to be a pool.

    There’s no mystery and there’s no omgPonziScheme to this.

  • http://blog.trenchcoatsoft.com Ross

    Also, the whole “Social security runs out of money in 20 years” thing is based on federally mandated calculations which assume that the economy will crash continuously for 20 years. The calculation isn’t “How long will social security last given how things are going,” but  “How long could social security last even in the worst possible scenario.” 

    Frankly, if the economy does poorly enough for this to happen, we will have worse problems than social security becoming insolvent.

    Also, of course, the conventional wisdom about social security assumes that baby boomers are immortal. That’s the basic concern: “O noes! Baby boomers are retiring! Not enough gen-xers to pay into the pot!” is only a problem if you assume that the baby boomers will live forever, making this a permanent state of affairs, rather than a temporary blip that will correct itself as the millennials enter the workforce, and eventually reverse itself as the baby boomers die off and the comparatively small Gen X workforce retires.

  • http://beingperfectlyhuman.blogspot.com/ Eric Fry

    “1. Our grandchildren all turn out to be selfish assholes and oath-breakers”

    How can our descendants be oath-breakers to an oath they did not take? As far as the “selfish asshole” part, you’re doing nothing but engaging in useless ad hominems. I thought you were trying to lift yourself above that, but perhaps, I’m wrong…

  • Carstonio

    This is part of a larger failure (or refusal) to understand that economies and governments don’t work like household budgets, and I say this knowing that my own economic knowledge is lacking. This is the background to the fights over the debt limit and sequestration. Party and ideology aside, it seems to be rooted in anti-intellectualism.

    I’ve encountered quite a few people who do believe in the threat of underreproduction, but it’s conveniently limited to nations with mostly white populations, and usually takes the form of antifeminism.

  • Lori

    Are you really sure you want to go with “I didn’t ask to be born?” as your argument? Because that’s what this boils down to, and the logic of a petulant teenager is rarely a credit to an adult.

  • Carstonio

    I’ve heard the baby boomer argument from many people for a number of years. While they acknowledge that the blip would be temporary, they also insist that will be fairly large and long, lasting at least a couple of generations. From my listening, they’re making questionable assumptions about the demands that the boomers will make on the system and the ability of Xers to pay into it. I suspect that some of them imagine the latter generation to be slackers.

  • Morilore

    I’ll agree that “oath-breakers” is not quite the most felicitous term, in that it opens a door for all kinds of too-easy tone trolling, as you have aptly demonstrated.  I would have chosen the word “ingrates.”

  • http://beingperfectlyhuman.blogspot.com/ Eric Fry

    More ad hominems. Bravo.  I suppose that you believe your oath (or your forefather’s oath) to be something sacred that is binding upon every generation. Nice try at a strawman deflection, but your position is clearly the one of the petulant teenager. One generation has no right to force its will upon a different generation, but I suppose you don’t really like any sort of freedom unless it suits your agenda, do you?

  • EllieMurasaki

    Oh, so if the twentysomethings of the US collectively say ‘fuck capitalism, it’s not helping us any, let’s try socialism and see if that works any better’, the fortysomethings and sixtysomethings of the US have no right to impose capitalism upon the twentysomethings?

    I am down with that.

  • http://beingperfectlyhuman.blogspot.com/ Eric Fry

    “Ingrate” would have been a much more appropriate term for “oath-breaker” in this context. 

  • JustoneK

    Can we do that?  I’d like to try that.  Do we need a petition?

  • http://beingperfectlyhuman.blogspot.com/ Eric Fry

    If the twenty-somethings can make an appropriate change within the constraints of the Constitution and existing law, then yes. But your assumption is a misanthropic one, assuming that people can only learn by experience and not by example (and it may be quite valid, looking at some examples of today’s society.)

    Now, however, I have learned from experience that the comment section of this blog is much less of a place for intelligent discourse than it is a place for propagandist positions and trolling.

  • EllieMurasaki

    You didn’t say anything about the Constitution or existing law.

    Yeah, that might have something to do with how you came in spoiling for a fight.

  • Lori

     

    More ad hominems. Bravo.  I suppose that you believe your oath (or your
    forefather’s oath) to be something sacred that is binding upon every
    generation. Nice try at a strawman deflection, but your position is
    clearly the one of the petulant teenager. One generation has no right to
    force its will upon a different generation, but I suppose you don’t
    really like any sort of freedom unless it suits your agenda, do you?  

     

    If the twenty-somethings can make an appropriate change within the constraints of the Constitution  

    Why should they be constrained by the Constitution? They didn’t agree to it. It’s not their signatures on the bottom. It’s just a previous generation forcing its will on a different generation.

  • http://beingperfectlyhuman.blogspot.com/ Eric Fry

    No, I didn’t come in spoiling for a fight, I merely commented on the language used in the post. If you saw that as spoiling for a fight (which you certainly did) you might want to take a look at yourself before you go around slinging your invective, because you’re the one that was looking for a fight that wasn’t even there. 

  • ohiolibrarian

     If fewer people die before adulthood, then more people are contributing during their working years. And this is another reason why our immigration “problem” is kind of a benefit … to the very people who are most opposed to immigration (immigrants usually skewing younger).

  • Lori

    So you’re picking this fight entirely over “ingrate” vs “oath-breaker”?

  • AnonymousSam

    As long as the older generation is or has been engaged in activity which benefits the younger generation, then yes, the younger generation is expected to reciprocate. There are worse words than “ingrate” for a person who milks the previous generation for all they’re worth and then leaves them in a gutter. Society is built upon mutual cooperation; why should this suddenly be invalid across generations?

  • EllieMurasaki

    I think we are having a failure to communicate. When I say ‘ad hominem’, I mean an attack on the person making an argument, not on the argument itself or on someone not making the argument. When I say ‘misanthropic’, I mean ‘hating or disliking humanity’, not–well, whatever it is you meant. And when I say ‘invective’, I mean something along the lines of ‘Fuck you sideways, you fucking fuckwit, and the horse you rode in on too’.

    Please observe how I have not, until just now and that only to provide an example, actually used any swear words in this thread.

  • Kubricks_Rube

    One generation has no right to force its will upon a different generation

    That is a wholly different argument and calls into question all precedent of law. Fred’s point is not being made for those who oppose Social Security on principle. It’s for those who ostensibly support the program but either want to change how it works and/or don’t understand how it works (thanks, in large part, to those who do want to get rid of it altogether).

  • ohiolibrarian

     If our grandchildren are willing to kick their own (and everyone else’s) grandparents in the face, what would you call them?

  • Miratri

     It’s not like younger generations will necessarily get out of the obligation if we gut social security, either. What happens to elderly people who can’t afford to live on their own? Traditionally, they wind up living with their children, if they have children who are able to help them. Guess what’s more of a financial squeeze than a 6.25% tax? Being the sole supporter for your parents for an unknown number of years, probably while working at least one job and perhaps raising children. AWESOME.

    Sure, a few whose parents are wealthy and well prepared for their own retirements will be fine, but life’s just going to get even harder for everyone else in the “sandwich generations,” in terms of finances and actual physical and emotional labor, if their parents wind up totally destitute.

  • Eminnith

    ” I suppose that you believe your oath (or your forefather’s oath) to be something sacred that is binding upon every generation.”

    That’s how human society works, Eric.

  • ohiolibrarian

     Buh bye, Troll.

    Oh, you meant WE are trolls? Because we don’t like your condescension and LACK OF VALID POINTS? Because your feelings are hurt that other people don’t just accept your “arguments” as wisdom?

  • http://blog.trenchcoatsoft.com Ross

    If Ponzi schemes worked the way Social Security does, they wouldn’t be illegal.

  • ohiolibrarian

     So, I guess you don’t discipline your kids because that would be one generation forcing its will upon a different generation. Glad to know who to blame for some of the less than well behaved ones then. Now, every time I hear some kid having a tantrum or behaving badly, I can say, “That must be Eric Fry’s kid”.

    It also explains a LOT about today’s Republican party.

  • Madhabmatics

     yes we owe nothing to society, burn it all down, chaos reigns

    -a libertarian

  • ohiolibrarian

     Note that Social Security IS existing law and the Constitution was a commitment made many generations ago. And yet, you seem to think that the Constitution and existing law should remain valid (well, except Social Security, I guess). So, how does that work with your contention that a decision by one generation shouldn’t obligate later generations?

  • http://blog.trenchcoatsoft.com Ross

     Look, I gwet it, you want to destroy civilization. YOu may have deluded yourself into thinking that’s not what you’re doing, but it is.

    That is abominable behavior. Don’t expect us to let you do it without a fight.

  • P J Evans

    I have learned from experience that the comment section of this blog is
    much less of a place for intelligent discourse than it is a place for
    propagandist positions and trolling.

    You’re here commenting. That tells us a lot about how much you don’t like the place.

  • P J Evans

    I read an argument once that the Constitution was signed by all of us, because everyone was represented by the signers, even people who weren’t born.
    It’s interesting when you realize that they effectively institutionalized revolutions: every four years, we get a government-mandated opportunity to change things.

  • John (not McCain)

    People who kick their own and everyone else’s grandparents in the face can with certainty be called conservatives.

  • Carstonio

    Single-payer health care is based on the same argument. In both cases, we’re talking about unavoidable costs. The absence of single-payer means that folks without insurance rely on emergency rooms for primary care, which translates to higher health care costs for everyone. Similarly, without the cushion of Social Security, the cost of supporting the elderly gets tossed back to their loved ones.

    Unavoidable, that is, unless society simply chooses indifference. Other than Charles Dickens villains, I haven’t heard anyone explicitly advocate letting the poor and elderly starve. In my experience, opponents of the safety net refuse to accept that the world isn’t inherently just and cling to the comforting notion that poverty is solely the lack of ability or drive. Or else they believe that people would willingly share everything that distressed neighbors would need if it weren’t for the big mean government making them share. Not necessarily a selfish objection to sharing, but more of a childish objection to sharing as a social obligation.

  • prufrock

    Any time someone brings up the tired chestnut that there were twelve workers per retiree in 1940 but now there are only three (or two and a half, or whatever number is thrown out there), I smile and think of the year 1912.  That was the last year that there were as many rural residents as urban dwellers.  That number has shrunk to the extent that today only about three percent of the population is even tangentially connected to food production.  Yet somehow we have not suffered from mass starvation at any time in the past one hundred years.  In fact, we produce far more food than was even conceivable in 1912.

    The modern economy acts in much the same manner.  Today’s worker is far more productive (at least when they aren’t commenting on Slacktivist).  We have more money as a nation than we’ve ever had, and the only reason so many are feeling the pinch is that so much of that excess has been absorbed by the one percent.  To complete the farm analogy, picture a tiny portion of the population living in mansions built on top of giant silos, where all that excess grain is stored.

  • depizan

    Only if you have no idea what Ponzi or pyramid schemes are.

  • Robyrt

    Only if you have a very strict definition of “broke” which means “there is no money available for this purpose.” People who say Social Security is going broke mean “there is not enough money available for this purpose,” in the same way I might say that I am broke because I’m not earning enough to cover my rent and utilities. So yes, Social Security is going broke, in the sense that long-term it will need additional revenue to cover its expenses.

    However, I am not really concerned about Social Security, because its expected shortfall is relatively small and there is lots of room to raise additional revenue. The cap on payroll taxes could be raised, the system could be means-tested, the retirement age could be raised, the inflation index could be changed – any of these would be enough to keep the system functioning properly for the foreseeable future. It’s Medicare that’s the real problem.

  • http://profiles.google.com/marc.k.mielke Marc Mielke

    I’m over forty. Can I say ‘fuck capitalism, let’s try socialism’ too? 

  • http://profiles.google.com/marc.k.mielke Marc Mielke

    There are worse words than “ingrate” for a person who milks the previous generation for all they’re worth and then leaves them in a gutter.

    I didn’t know ‘Paul Ryan’ was a pejorative. (But it totally should be).

  • EllieMurasaki

    I don’t see why not.

  • P J Evans

     ’Means testing’ SS would turn it into something like welfare – and that would make it much easier to kill.
    Raising the retirement age is equivalent to cutting SS. (Note that the people proposing this all have desk jobs, a really good health-insurance plan, a generous  pension in addition to SS, and lots ofmoney.)  Lowering the age for full SS would mean more people retire who want to, and that should mean more jobs for younger people.
    Changing the COLA methods also being floated – and it’s ANOTHER way to lower SS, because it would assume that people will choose less-expensive alternatives, ignoring that they’re already doing that, and still don’t make enough.

    Fixing Medicare so it doesn’t depend so much on insurance and drug company pricing would do a lot more to reduce the deficit. But they’ll never mention that, because Big Business.


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